Five steps to fiscal sanity

Five steps to fiscal sanity

The Alward government is about to bring down its first budget. Its authors and its audience need to clearly understand that the rules have changed.

Commentator Charles Cirtwill argues that early childhood education is an area where government should be investing more, even as it cuts back on spending in other areas. Unlike every other budget that baby boomers and their progeny have seen since the early 1950s, this budget is being written as our population finally passes the tipping point and begins what will be a startling decline. As each successive generation of baby boomers entered the workforce, our economy went from strength to strength, as they leave it do we really think the reverse will not occur?

Certainly, technology has advanced, our knowledge has expanded and I am the first to concede the power of the human mind to overcome most challenges, given time. But it is time we do not have. We frittered that luxury away jacking up our debt and spending money on every bauble that struck our fancy. The challenge now is not whether boomers will be the first generation to leave their children worse off than themselves, but how much worse off will those children be?

If baby boomers are to shoulder, in this final hour, some of the burden they have created for society, then this budget must seek for some fiscal sanity. Here are five steps to achieve that goal.

First, do things in the right order. Good fiscal policy is a three legged stool: control spending, get the tax balance right, and grow the economy. But that stool must be built in a particular order. If you raise taxes before cutting spending, the pressure to cut is decreased – just have a look across the border in Nova Scotia, where both taxes and spending are going up, debt is rising, and the structural deficit remains unchecked. For the folly of stimulating the economy before restraining spending or rebalancing taxes, look west, to Ottawa, where political expediency has trumped fiscal sanity for five years under a minority government.

Second, controlling costs is not a one-off exercise. All too frequently new governments perform a program review, do an across-the-board cut, blame the pain on their predecessors and move on, sSpending merrily away in following years because that is how government is designed.

Structural, not cosmetic, change is required. That starts at the top. Every new piece of legislation should have a sunset clause; three to five years out the program needs to be justified again, versus the new priorities of the day. And that justification should be done by our elected representatives, not by consultants or public servants.

Right now, the only thing the legislature does is create new government; they should be mandated (and the rules changed to empower them) to meet regularly not to promulgate new laws but to review and eliminate existing ones.

Third, cutting across the board is not managing, it is coping. Fiscal sanity involves choosing not only where to cut, but where to spend. We need to decide what our priorities are and spend appropriately to achieve them. Early childhood learning is an area, in my view, where we invest too little; subsidies to business and perks for politicians and public servants where we spend too much.

Fourth, we need to recognize that people are ultimately the only source of money and everyone, yes everyone, will have to contribute more. However, income taxes are not government’s only tool for maximizing individual contributions.

Indeed, the OECD has convincingly made the case that high income taxes are actually at cross purposes with a growth agenda. A focus on consumption, not income taxes; maximizing the return on work and investment; and removing unnecessary constraints on private spending (yes, that includes spending in health and education) are all proven tools for growing the economy.

A government focused on maximizing the potential of every individual might actually achieve that which we have promised for so long, and so far have failed to accomplish: an acceptable, accessible and sustainable minimum level of services for everyone.

Fifth, and finally, trade, not protectionism, is the way forward to a strong and diverse economy. Disturbing noises about regional cooperation are beginning to make the rounds. As a cost-saving mechanism, cooperation makes perfect sense; as a growth formula, regional markets as our focus is the height of insanity.

A small, and shrinking, population cannot hope to sustain our children and our children’s children. A first step in this regard would be free trade with all of Canada’s provinces, and the fastest route to achieving that is to sign the Trade Investment and Labour Mobility Agreement created by B.C. and Alberta.

Let’s hitch our wagon to the future, not the past, and let’s do it now, as it is already well past too late.

Charles Cirtwill is President and CEO of the Atlantic Institute for Market Studies, an independent social and economic policy think tank based in Atlantic Canada.